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WIKI ANALYSIS
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Ritchie Bros. Auctioneers (NYSE: RBA) is the world's largest auctioneer of agricultural and industrial equipment, such as tractors, trucks, harvesters and bulldozers, with over $3.19 billion worth of goods auctioned in 2007.[1] All of the company's auctions are unreserved, which means that there is no minimum bid and no reserve price. Ritchie Bros adheres to a policy of strictly preventing sellers from bidding on their own goods, which sets it apart from some competing auction houses.[2] Ritchie Bros. competes with other industrial auctioneers such as WWA Group Inc. (WWAG) and Cincinnati Industrial Auctioneers, Inc., as well as traditional industrial equipment retailers like Titan Machinery (TITN).
Ritchie Bros has expanded worldwide, with thirty-eight auction sites in ten countries.[3] As new home construction in the U.S. fell 25% from the first quarter of 2007 to the first quarter of 2008,[4] the demand for industrial equipment used in construction has fallen as well. Ritchie Bros is looking increasingly to its international operations to make up for sluggish domestic sales. International sales also benefit from a weak U.S. dollar, as sales in foreign currencies translate to more dollars and dollar-denominated sales become cheaper for customers in other countries. Likewise, rapid industrialization in China (where industrial output increased as much as 12.8% per year between 2003 and 2006) and other emerging markets increases the demand for goods sold in Ritchie Bros' auctions abroad.[5]
BusinessRitchie Bros. conducts auctions for industrial and agricultural machinery. In 75% of the company's auctions, sellers pay a flat commission fee when Ritchie Bros sells the equipment being auctioned [6] In auctions where the seller pays Ritchie Bros a flat commission fee, the company takes on almost no risk because an unsuccessful auction does not mean that the company has excess inventory.[7] In the other 25% of auctions, Ritchie Bros either signs a contract guaranteeing the seller a minimum price for their item or buys the equipment itself.[8] Whether the company guarantees a minimum sale price or buys the equipment outright, it uses its database of historical sale prices to determine a fair price for the equipment and minimize risk.[9]
In addition to bidding live at the company's auction sites, buyers can watch the auction and bid online in real-time using the company's rbauctionBid-Live service. Ritchie Bros. screens and authorizes all online buyers before the auction to guarantee that online bids come from reputable bidders.[10] In addition to bidding online, buyers and sellers can search the company's database to find the prices that previous Ritchie Bros auctions have closed at, giving them an idea of the fair market value of industrial equipment.[11]
Business FinancialsRitchie Bros. Auctioneers 2007 Revenue, Operating Income, and Net Income[13] ($ in millions)
| Segment | 2007 | 2006 | 2005 |
| United States | 176 | 157 | 121 |
| Canada | 71 | 55 | 49 |
| Europe | 39 | 29 | 27 |
| Other | 29 | 20 | 16 |
| Total | 315 | 261 | 213 |
| Operating Income | 111 | 91 | 78 |
| Net Income | 76 | 57 | 54 |
Key Trends and Forces
U.S. biofuel subsidies drive demand for agricultural equipmentBiofuels subsidies in the United States are estimated to be between $5.5 and $7.3 billion a year.[14] The Global Subsidies Initiative believes that if current trends continue, the biofuel industry will receive about $92 billion between 2006 and 2012.[15] In order to collect subsidies, farmers expand their crops that are used to produce biofuels, increasing demand for harvesters and other agricultural equipment, resulting in more successful auction and commission fees for Ritchie Bros. At the 2008 UN emergency food summit, the UN Food and Agriculture Organization (FAO), asked countries, such as the U.S., to decrease their biofuels subsidies in order to help decrease the cost of food.[16] If the U.S. government reduces biofuels subsidies in response to international pressure, the domestic demand for the agricultural equipment in Ritchie Bros' auctions will decrease.
Residential construction spending down 20% in the U.S.Between April 2007 and April 2008, total construction spending fell 4%, with a 20% decrease in residential construction spending.[17] The decrease in spending on construction causes the demand for construction equipment like bulldozers and cranes to decrease as well. As construction companies have decreased their spending on equipment, Ritchie Bros has completed fewer successful auctions, which means lower commission fees and revenue for Ritchie Bros. Partially as a result of decreased construction spending, Ritchie Bros' revenue decreased by almost 2.4% between the three months ending December 31, 2007 and the three months ending March 31, 2008.[18] On the other hand, when construction spending increases, so does demand for the construction equipment auctioned by Ritchie Bros.
Weak U.S. dollar boosts Ritchie Bros' SalesIf foreign currencies depreciate, the U.S. dollar value of Ritchie Bros' international revenue decreases. On the other hand, if foreign currencies appreciate, the U.S. dollar value of Ritchie Bros' international revenues increases. Between June 18, 2007 and June 18, 2008 the euro, the Canadian dollar, and the Japanese yen all appreciated in relation to the U.S. dollar.[20][21][22] The weakening dollar gave Ritchie Bros’ revenues a slight boost and contributed to the growth of the company's foreign revenues from 40% of total revenues in 2006 to 44% of total revenues in 2007.[23]
Increased industrialization in emerging markets increases the demand for industrial equipmentAbout 60% of sales at Ritchie Bros auctions are shipped to buyers outside the region in which the auction is held.[24] The lack of geographic boundaries, along with auction sites in Singapore, Australia, Dubai, Europe, and Mexico, provides Chinese, Indian, Russian and Brazilian bidders access to its auctions, putting Ritchie Bros is in a position to capitalize on the growth of the BRIC (Brazil, Russia, India, China) countries. Between 2003 and 2006 China's industrial production increased between 11.5% and 12.8% per year.[25], reflecting a general trend in the BRIC countries. As industrialization increases in emerging markets, so does the demand for industrial equipment. This demand from emerging markets has contributed to the growth of the company's revenues from outside of the U.S., Canada, and Europe from 7.5% of total revenues in 2003 to 9% of total revenues in 2007.[26][27]
| Physical Auction Sites | United States | Canada | Mexico | Europe | Middle East | Australia |
| Albuquerque, NM | Grande Prairie, AB | Polotitlan, MX | Caorso, Italy | Dubai, UAE | Brisbane, QLD | |
| Atlanta, GA | Montreal, QC | Moerdijk, Netherlands | Geelong, VIC | |||
| Buxton, ND | Edmonton, AB | Moncofa, Spain | ||||
| Chicago, IL | London, ON | St Aubin sur Gaillon, France | ||||
| Statesville, NC | Prince George, BC | |||||
| Sacramento, CA | Vancouver, BC | |||||
| Phoenix, AZ | Regina, SK | |||||
| Orlando, FL | Truro, NS | |||||
| Minneapolis, MN | Toronto, ON | |||||
| North East, MD | Saskatoon, SK | |||||
| Los Angeles, CA | ||||||
| Olympia, WA | ||||||
| Nashville, TN | ||||||
| Las Vegas, NV | ||||||
| Hartford, CT | ||||||
| Denver, CO | ||||||
| Houston, TX | ||||||
| Kansas City, MO | ||||||
| Fort Worth, TX | ||||||
| Columbus, OH |
Key CompetitorsRitchie Bros. competes with other industrial auctioneers such as WWA Group Inc. (WWAG), small private auctioneers like Cincinnati Industrial Auctioneers, Inc. as well as traditional industrial equipment retailers like Titan Machinery (TITN).
Ritchie Bros and Key Competitors 2007 ($ in millions)
| ' | Revenues | Net Income | Net Profit Margin |
| Ritchie Bros | 315 | 76 | 24% |
| WWA Group Inc. (WWAG) | 27 | 1 | 5% |
| Titan Machinery (TITN) | 433 | 5 | 1% |
References



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